Porter’s generic strategy
One of the best known explanations of competitive advantage can be derived from M. E. Porter’s generic strategy framework. According to Porter competitive advantage arises from selection of the generic strategies that best fits the organisation’s competitive environment and then organising value-adding activities to support the chosen strategy. Cost Leadership Strategy It’s imperative for a company like Ansell International to adopt a cost leadership strategy or in order to be successful globally.
The cost leadership strategy is based upon a business organizing and managing its value-added activities so as to be the lowest cost producer of a product within the industry. In the case of Ansell International the products are not only of good quality thanks to the strong Research ; Development Department based in Australia but they have also been able to enjoy the benefits of mass production in countries like Malaysia where the manufacturing cost is comparatively low in comparison to Australia, United States and the European Markets combined .
The company has successfully been able to enjoy economies of large scale due to mass production activities and also the benefit of exporting finished goods back to their own domestic market in Australia for sale at a much higher price that what they could in Malaysia. Benefits of Cost Leadership 1. As actual production was located in Malaysia where the cost of production would be much lower than that of Australia, the company could afford to sell its goods in the Australia market much lower than any competitor at the given point of time.
2. Cost Leadership would allow the company the possibility to increase both sales and market share by selling at very competitive prices. The new markets tapped in East Africa, Arabian Gulf, Iran, Korea, Hong Kong, Malaysia, West Indies and many other countries were the result of overall cost leadership. 3. Many of the new countries and markets Ansell would enter are price sensitive markets thus it was imperative for the company to maintain over all cost leadership.
With the help of over all cost leadership Ansell International was successfully able to create a barrier to entry of other competitive firms wanting to enter the industry. Thereby the company would enjoy high levels of market share. 5. All the countries Ansell International entered have something in common, that is low cost of production and availability of some kind of government help and support. 6. Overall Cost Leadership enabled the company to expand at a much faster rate than what it could with the help of adapting other generic strategies. (Campbell, Stonehouse ; Houston, 2002, Pg 158-159).
It’s imperative for a company like Ansell International to keep its production cost low and at the same time maintain the highest level of quality standards, only then can it receive complete benefits of being a overall cost leader. There are many factors which have been taken into serious consideration before choosing Sri Lanka as a manufacturing base for the company, these are as follows: 1. Availability of Cheap Raw Materials: Considering the fact that Sri Lanka is one of the major producers of natural rubber latex in South Asia is more than enough a reason for Ansell International to set up their manufacturing there.
Apart from getting cheap raw material the quality and yield of rubber latex is also considerable. 2. Cheap Manpower: Apart from getting extremely cheap manpower, majority of the villages and towns situated near the rubber belt have good training and education facilities for the workers and their children. Thus the quality of manpower available is extremely good and up the standards required for Ansell International.
Shipping Facilities: Sri Lank enjoys an excellent geographic location from the point of shipping; they have excellent shipping facilities with easy access to Asian, European and USA markets. Colombo, Galle and Trincomaleee have large shipment capacities and excellent facilities for incoming and outgoing cargo. This makes it easier for Ansell International to ship finished products to all major international markets at an extremely reasonable cost.
Government Policies: The Government not only wants to encourage foreign investment in their countries in regard to foreign exchange generation but at the same time are doing a lot to encourage the rubber plantation industry on a whole. They want to provide the necessary infrastructure and subsidies to those companies who want to encourage rubber plantation in Sri Lanka. This gives Ansell International an excellent opportunity to make a stead base and long time investment in this country.
Security Arrangements: The Government of Sri Lanka is committed to provide adequate security arrangements to those international companies who would come in and set up their manufacturing unit in the country, considering the fact that any international corporation would not compromise security for any other benefits. Analysis Right from the manufacturing prospective Alabama is going to be an extremely expensive preposition considering that fact that manpower is extremely expensive in comparison to Sri Lank.
On the other hand Ansell International can derive all the other benefits of cheap labor, raw materials and shipping facilities from Sri Lanka. They need to keep their cost of production low in order to serve competitive markets like the United States, Europe and Asia Pacific. Answer 4 It’s imperative to understand the overall strategy adapted by Ansell International before justifying the pricing and promotion policy of the company. National Responsive Strategy Under the present circumstances it’s imperative for the company to go ahead and adapt a multimarket pricing and promotion policy.
This falls perfectly well in accordance to their overall National Responsive Strategy which allows subsidiaries of the company to have substantial latitude in adapting products and services to suit the particular needs and political realities of the countries in which they operate. This strategy does sacrifice many of the potential advantages of worldwide integration, but on the other hand it makes the company much more flexible than ever. The subsidiaries of Ansell International would operate almost as if they were national companies, fixing prices and promotion strategy in accordance to the strength of the local economy.
The company would retain many of the substantial benefits of being affiliated with the multinational mother company, such as shared finances, risk and access to the global Research and Development wing located in Victoria, Australia. (Bartol & Martin, 1994, Pg 641) Analysis In order to avoid price escalation problems Ansell International would have the following options: 1. Set a uniform price everywhere: Ansell International could go on and set a uniform price everywhere for its products, in this case they would earn different profit rates in different countries.
Also, this strategy would result in the price being too high in poor countries and not high enough in rich countries. 2. Set a market-based price in each country: In this case Ansell International would charge what each country could afford, this strategy ignores differences in the actual cost from country to country. 3. Set a cost-based price in each country: This in reality would turn out to be the best pricing policy for Ansell International; They could use a standard mark up of its cost everywhere. This way they would charge only according to the manufacturing cost incurred and this would be more feasible for low cost base countries.
Thus the best option to be adapted by the company would be to set a cost-based price in each country. Answer 5 Products to Focus The most important thing for any company is to identify its Strengths, Weaknesses, Opportunities and Threats. It’s extremely important for the company to understand the fact that its products should be acceptable in the world wide market if it has to follow the steps of expansion and globalization. Presently Ansell International is into designing of those rubber based products for the Health Care Industry that maximizes protection while minimizing risk to patients.
As they have already proved to be the growing market leaders in the production of medical gloves for the medical and health care industry they should remain focused in these directions in order to maximize their expertise and revenue generation capacity. They have already been categorized as a company that manufactures the broadest range of medial gloves for the health care industry, manufacturing right from latex and Latex Free, sterile and non-sterile, surgical and examination gloves to gloves for home and commercial use.
This has always been an extremely strong area for the company and they should not divert their focus as this is presently the fastest growing industry with limited risk factors. (URL: http://www. ansellhealthcare. com/america/usa/updates/intro. htmm Last Viewed: 15/04/04) Focus Markets Ansell International holds an extremely exclusive position in the United States Health Care Market. They hold a top market share in the total glove market in addition to a top 3 position in every key product category it manufactures.
This shows that it needs to focus a majority of its strength in the United States and Europe markets as these are extremely high return paying markets. They best think for the company to do would be manufacture its products in places like Sri Lanka and other low cost Asian markets and concentrate there sales strategy in the United States, Europe and Australian markets. This would not only help the company to increase its base in the present markets its serving by increasing its overall market share but would also help the company to grow and discover new markets that would be lucrative in the future.